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Financial Aid to Be Slashed

College can still be affordable -- if you plan ahead now.

If you're a college student, a prospective college student, or the parent of some such person, take note: Congress is looking to pass the largest cut in student financial aid in American history. Yikes!

Does this mean that you'll have to forget your dream of Junior walking up to the podium at Harvard or Brown's graduation ceremony in his cap and gown? Will Junior be living in your basement till he's 40, getting an online education via the Apollo Group(NASDAQ:APOL), Corinthian Colleges(NASDAQ:COCO), Career Education(NASDAQ:CECO), Laureate Education(NASDAQ:LAUR), StrayerEducation(NASDAQ:STRA), ITT Educational Services(NYSE:ESI), or DeVry(NYSE:DV)? Fear not -- that's not necessarily the case at all. (And I didn't mean to disparage online education -- it's serving many people quite well, and investors are interested, too.)

Here are some details on the cuts: They'll total nearly $13 billion over five years, beginning this July. We can expect interest rates on subsidized Stafford loans to jump to a fixed rate of 6.8% from current levels, which can be as low as 4.7% for those still in school. Parental loans won't be spared, either, with their interest rates expected to rise from 6.1% to 8.5%.

Don't gnash your teeth about all this quite yet. You can minimize the damage. If you're a consumer of student loans, look into securing your next loan as soon as possible, before rate hikes take effect. That means you too, parents -- look into PLUS loans! (PLUS stands for Parent Loan for Undergraduate Students.)

If you've already got some student loans under your belt, consider consolidating them. The folks at College Loan Corporation (CLC) point out that, "For graduates, if you haven't consolidated your student loans, you can save thousands of dollars by doing so before the July 1 rate increases, securing a rate of as low as 4.75% for the rest of your repayments. That's especially important for the millions of students in the class of '06. They'll have a very small window to apply. By consolidating now, students and parents can lock in the lower rates. For example, someone with $60,000 in loans can save more than $7,000 over the 10-year repayment period."

The CLC also offered some other tidbits:

60% of students graduate with student loans, and the average debt is just under $20,000.

Tuition costs are also increasing. A recent report by the College Board confirmed that the average yearly cost of attending four-year public colleges increased by 7.1% last year -- more than double the rate of inflation -- to $5,491. At private four-year colleges, the average cost increased by 6% to $21,235.

Author

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter... Follow @SelenaMaranjian